Flat Tax or Sales Tax? A Win-Win Choice for America.

The Heritage Foundation ^ | 8/14/1997 | Daniel Mitchell

[Taxman]

LOL! One can never tell, can one?

[Taxman]

Yup.

[Taxman]

You (and all other FReepers) are cordially invited to join the National Retail Sales Tax Alliance, Inc. For more information, see http://www.salestax.org and http://www.votr.org.

[Taxman]

Well, then, you should be a huge proponent of the National Retail Sales Tax.

We need your help: http://www.salestax.org and http://www.votr.org.

[Godel]

I'd prefer a national retail sales tax for one simple reason. I just don't like that the government needs to know exactly how much interest you're making in every single bank account, every investment, etc. Its a huge hassle and a huge invasion of privacy.

Question, is there any chance something like this could just be passed through reconciliation making it immune to filibuster? This would be budget related.

[fporretto]

Self-ping. This needs some careful study. I like the feel of it, though.

Freedom, Wealth, and Peace,
Francis W. Porretto
Visit The Palace Of Reason: http://palaceofreason.com

[TheCPA]

A flat tax is an income tax. The flat tax might eliminate some itemized deductions. However, determining income is an inherently complex process for business. Business deductions and all the related complexity would remain. The lower rates of a flat tax would be nice, but there would be little reduction in overall complexity.

What I hear is that the Bush administration is looking at making the income tax more of a consumption based tax by allowing more deductions for savings and investment. Such a change would be a lot easier to implement than a complete overhaul of the tax system.

A sales tax would be much simpler and muss less intrusive than an income tax, including a flat tax.

[Taxman]

Not so, arielb, not so.

"The NRST is a terrible idea that will lead to a massive underground economy as people use cash to avoid paying the tax."

The NRST will actually shrink the underground economy, which is, BTW, the fastest growing segment of the US economy. Here is the logic: I believe that most Americans are honest, and that, given the opportunity to be treated with equality (taxwise), they will respond by voluntarily dropping out of the underground economy. The risk of getting caught as a tax cheat for 30 cents on the dollar (the NRST) is not worth the penalty. OTOH, in today's economy, a self-employed person in the 39 1/2 percent tax bracket has an 82 cents on the dollar reward for cheating (do the math: 39.5% + 15% (SS and Medicare) = 55% tax bracket. In order to have $1.00 after taxes in that environment, a person has to earn 1/.55 = $1.82). That is a powerful incentive to cheat, which the NRST eliminates. Not only that, the fact that the NRST eliminates the progressive penalty on earnings and treats all persons exactly alike will tend to cause people to become more honest.

"It will lead to multiple rates on products that the government favors or disfavors."

Only if the American people fall asleep at the switch again. Remember, we have an obligation as citizens to keep the rascals in check. When we fail, we get screwed. When we succeed, we get rewarded. "The price of liberty is eternal vigilance!"

"It is heavily biased against consumption which is anti free market and will lead to overinvestment."

The price of goods and services will not go up with a NRST. Consumption will, in fact, increase, because the American people will have more disposable income. And, investment will likewise increase. In the NRST environment, consumption and investment are good things, and in that environment, America will get more of both resulting in a rapidly growing, non-inflationary economy.

"It will also lead to the taxation of the internet which will shift e-commerce sites offshore."

So what? The sale of goods and services on the Internet should be treated the same as the sale of goods and services from the storefront. And goods purchased abroad which are shipped into the US will be taxed when they enter the country.

I'd suggest that you go to http://thomas.loc.gov and read H.R. 2525 and H.R. 2717. Then start thinking outside the box about the multiple benefits the NRST will have for America, American businesses and the American people. The NRST is a tax whose time has come: a 21st Century tax for a 21st Century America.

The NRST will restore FReedom to America, revitalize our economy through rapid, inflation-free economic growth and, through its equality of treatment (flat rate) of all persons, end the horribly divisive Liberal/Socialist/Marxist class warfare America has been cursed with throughout the 20th Century.

The NRST is a tax whose time has come!

[Taxman]

Older citizens will not be harmed by the NRST. And their children, grandchildren and their country will benefit enormously.

I say that because the academicians (Kotlikoff et al) who have studied this shift to consumption taxation clearly show that the cost of the progressive income tax system embedded in the cost of goods and services (25%, on average at the retail level) will be squeezed out due to competitive pressures resulting in no increase in retail prices.

That is, a $20,000 automobile in the progressive income tax economy will still be a $20,000 automobile in the NRST economy. Do the math: if 25% of the retail price of the automobile is a "Tax cost of government," and that cost is eliminated with the NRST, the resulting $15,000 auto will cost $20,000 with a 33% NRST.

In short, consumers, whatever their economic status, will not be hurt by the NRST. They will, in fact, benefit, because, all things being equal, every consumer will have more disposable income and more important, will be in control of how they dispose of that income. Consumers, not government, will decide when and how much federal taxes they pay. That is economic FReedom, my FRiend.

And, it is worth fighting for!

Go to http://www.salestax.org and http://www.votr.org to find out how you can help us do this. We need your help.

[Taxman]

Good answer, Oh! Ancient one. This explanation, along with my comments at post #29 should about cover this issue, doncha't think?

[Taxman]

AbsoFReepinglutely! Thank you.

Your comment needs to be repeated, loudly!

"Any system that removes this micromanagement that pits one group of Americans against another in a quest to get preferential tax treatment from the government is long overdue."

[Taxman]

Glad you are on our side, Godel.

The only way we are going to get a consumption tax passed into law is through force of numbers. We have to get a critical mass of voters in each Congressional District behind this idea.

I used to believe that 1,000 voters was enough -- I now believe we will need on the order of 3,000 to 4,000 voters per district to get this done.

Bottom line: We have to cause our elected officials at every level to fear for their jobs if they refuse to support the NRST.

Go to http://www.salestax.org and http://www.votr.org to find out how you can join with us and help. We can do this, but we need your help.

[Taxman]

Glad you "like the feel of it!"

Your study materials can be found at http://thomas.loc.gov (see H.R. 2525 and H.R. 2717), http://www.salestax.org , http://www.votr.org , http://www.fairtax.org and http://www.cats.org .

We need your help.

[Taxman]

Glad to hear that, TheCPA.

Most CPAs that I talk to like the NRST, primarily becasue it will allow them to do what they are trained to do and are most interested in: Maximizing their customer's earnings without having to deal with intrusive and abusive laws and regulations, not to mention the intrusive and abusive agency which enforces them!

See my post #33. We need your help.

[Badger1]

Another comment. If you want REAL campaign finance reform, the best way is to eliminate the current income tax and replace it with something simpler like the Flat Income Tax or the NRST. The majority of lobbying on Capitol Hill is from groups trying to get preferential tax treatment from the government. If congress were unable to provide these groups with preferential tax treatment, that money would dry up faster than puddle in the Sahara desert.

[Leto]

Even with an NRST there would be reporting requirements many goverment programs require means testing. Do you have any children? To get any financial aid from the school you have to fill out a FASFA form each year, this applies even if the aid isn't coming from the goverment.

The main political issue with a NRST at this time is (to me) the requirement that the 16th amendment be repealed. If the 16th amendment isn't repealed, as soon as the democrats get ack into power there will be a new income tax aimed initally at the "rich".

Our founding fathers constructed the constitution to protect citizens FROM goverment, they tried to assume WORST CASE scenario's, it would be prudent for us to do the same.

Repealing the 16th amend requires 67 Senators, 292 Congressmen and ratification by 38 States. WHich democrats will support repealing the 16th amendment? For that matter how bout the RINO's like Linc Chaffee???

There is no way politically to pass a repeal of the 16th amendment. A Forbes/Armey Flat Tax only requires a majority vote and if embedded in the budget process can't even be fillbustered in the Senate, and doesn't require ratification by the states.

[Leto]

Concerning the visibility of the various taxes. I think personal income tax and property tax are the MOST visible tax. For the self employed you have to write a check to the goverment for your estimated taxes, for property taxes the same. I can tell you exactly how much I pay in income and property tax. I don't really know HOW much I pay in state sales tax because it is spread out in many transactions.

Do you know how much you paid in sales tax last year?

Do you know how much you paid in property tax?

Do you know how much you paid in income tax?

WHich is more visible (and irrating) to you as a taxpayer?

[ancient_geezer]

A Forbes/Armey Flat Tax only requires a majority vote and if embedded in the budget process can't even be fillbustered in the Senate, and doesn't require ratification by the states.

and keeps the 16th amendment, the IRS, individual income tax plus a VAT(i.e. hidden sales tax).

The very things you claim Democrats will do to an NRST over a 40 senator filibuster, after it has done away with the income tax.

http://waysandmeans.house.gov/fullcomm/106cong/4-11-00/4-11kotl.htm

"Robert Hall, one of the originators of the proposal(Flat Tax), who describes his Flat Tax as, effectively, a Value Added Tax. A value added tax taxes output less investment (because firms get to deduct their investment.)"

"The Flat Tax differs from a VAT in only two respects. First, it asks workers, rather than firm managers, to mail in the check for the tax payment on that portion of output paid to them as wages. Second, it provides a subsidy to workers with low wages."

 

The Flat Income Tax (FIT) proposal, H.R. 1040, has two elements: a Flat Income Tax on an individual's earned income, and a VAT on businesses. The Flat Income Tax on businesses, is, by admission of Professors Robert E. Hall and Alvin Rabushka, who "wrote the book" on the FIT, a subtraction method Value Added Tax.

Quoting Hall and Rabushka ("The Flat Tax," Hoover Institution Press, 1995, pp55,56):

"To measure the total amount of income generated at a business, the best approach is to take the total receipts of the firm over the year and subtract the payments the firm has made to its workers and suppliers. This approach guarantees a comprehensive tax base. The successful value-added taxes in Europe work this way. The base for the business tax is the following:

Total revenue from sales of goods and services
less
purchases of inputs from other firms
less
wages, salaries, and pensions paid to workers
less
purchases of plant and equipment."

[Leto]

I think in the article Mitchell touches on some of the compliance issues. Studies have shown larger compliance issues with Sales taxes than with inocme taxes this is based on studies of each system in the real world. There are references at the end of the article.